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Fed Reg D changes open access to EBAs

WASHINGTON (6/3/09)—The Federal Reserve Board has amended Regulation D, which addresses reserve and reporting requirements for credit unions, banks and thrifts, by directing federal reserve banks to pay interest on certain balances held by or on behalf of depository institutions and allowing for the establishment of excess balance accounts at reserve banks. Under the rule, required reserve balances that are maintained by depository institutions that are not eligible to earn interest themselves on behalf of an eligible institution (a respondent), will accrue interest--which must then be passed back to the respondent. However, excess balances that are maintained by "ineligible" correspondents on behalf of a respondent will not earn interest. Once effective, the changes to Regulation D will also allow depository institutions, including credit unions, to establish limited-purpose “excess balance accounts." Such accounts will allow depository institutions to earn interest on excess balances held at reserve banks, including those institutions which maintain excess balances via an "ineligible" correspondent. The rule will become effective on July 2, 2009. The Fed has said that it plans to reexamine the continuing need for EBAs once financial markets have stabilized. For more on the final rule, use the resource link below.